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The Impact of Changes in Stock Prices and House Prices on Consumption in OECD Countries

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Author Info
Alexander Ludwig
Torsten Sløk

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Abstract

This paper quantifies the different impact of stock and house prices on consumption using data for 16 OECD countries. The analysis finds that the long-run impact of an increase in stock prices and house prices is in general higher in countries with a market-based financial system. The sensitivity of consumption to changes in stock wealth is about twice as large as the sensitivity to changes in housing wealth. Splitting the sample into the 1980s and 1990s shows that both countries with a market-based financial system and countries with a bank-based financial system moved toward a higher degree of responsiveness of consumption to changes in stock prices and house prices.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/1.

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Length: 37 pages
Date of creation: 08 Jan 2002
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Handle: RePEc:imf:imfwpa:02/1

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Keywords: Stock markets ; Consumption ; Asset prices ; OECD ; Economic models ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December. [Downloadable!] (restricted)
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  5. Larsson, Rolf & Lyhagen, Johan & Löthgren, Mickael, 1998. "Likelihood-Based Cointegration Tests in Heterogeneous Panels," Working Paper Series in Economics and Finance 250, Stockholm School of Economics, revised 27 Aug 1998.
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  6. James M. Poterba & Andrew A. Samwick, 1995. "Stock Ownership Patterns, Stock Market Fluctuations, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-2), pages 295-372. [Downloadable!]
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  7. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. Karl E. Case & Robert J. Shiller & John M. Quigley, 2001. "Comparing Wealth Effects: The Stock Market Versus the Housing Market," NBER Working Papers 8606, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Some Cautions on the Use of Panel Methods for Integrated Series of Macro-Economic Data," Working Papers 170, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  11. Nathalie Girouard & Sveinbjörn Blöndal, 2001. "House Prices and Economic Activity," OECD Economics Department Working Papers 279, OECD, Economics Department. [Downloadable!]
  12. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April. [Downloadable!] (restricted)
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  15. Romer, Christina D, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 597-624, August. [Downloadable!] (restricted)
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  16. Hali J. Edison & Torsten Sløk, 2001. "Wealth Effects and the New Economy," IMF Working Papers 01/77, International Monetary Fund. [Downloadable!]
  17. Martin Lettau & Sydney Ludvigson & Nathan Barczi, 2001. "A primer on the economics and time series econometrics of wealth effects: a comment," Staff Reports 131, Federal Reserve Bank of New York. [Downloadable!]
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  20. Peter J. Brady & Glenn B. Canner & Dean M. Maki, 2000. "The effects of recent mortgage refinancing," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 441-450. [Downloadable!]
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